A blog on strategies, and applying strategic perspectives on business related issues, and on miscellaneous discussions about China

2005-09-29

Taiwan's Defense Option (ii): Arms Procurement "Accounting"

As the debate continues, and the disguise in "accounting" of the Revised Special Budget was able to mislead the mass (even some professional journalists) into believing that the deal has been renegotiated, I tried to understand the contents of the arms procurement deal in Taiwan by googling. But it seems hard to find any detailed breakdown of the changes in this Special Budget. No wonder the pan-Blue criticized the Special Budget as a "$2bn/character" special budget (in the original proposal, it was NT$610.8bn on a few paragraphs totalling 299 characters).

Here is a great analysis ("挖肉补疮 台湾军购分文不减") comparing the figures NT$610.8bn, NT$480bn and NT$340bn (US$BN 18, 15, 11) in subsequent proposals. The article does not try to hide its being critical on the deal, so I believe the author is a pan-Blue writer (he used to be columnist for Taiwan's largest newspaper "China Times"). But the facts he listed are consistent with what we read elsewhere. I would be interested if any of you could find flaw in his analysis or mistake in the data. (Sub-bullets in brown are my additional research and comments)

"Minister of National Defense (MND) Li Jye said, the reductions of the Special Budget is the most painful, and punishing experience in his life. He had to delete 53 items in his original defense budget (i.e. not the "Special Budget"), and this affects the improvement of the combatting ability...

To get from 610.8bn to 480bn, MND cancelled its plan to co-produce naval ships (71.9bn), other accesory and engineering costs (21.8bn) , shifted 19.8 "local spending" into the daily budget of MND, the total amount shifted was 113.5bn, plus a small adjustment in USD/NTD exchange rate (about 20bn), you got 480bn

To get from 480bn to 340bn, the same trick was used again. This time it eats into the annual defense budget in coming years. Out of 480bn, 140bn worth of PAC-3 will be shifted into the 'normal budget' in the next 6-8 years, therefore, the Special Budget becomes 340bn!

No wonder Lee Jye said it was the most painful exercise

There are more questions: the Diesel submarines cost $1.5Bn each, 3 times what it would cost for comparable products

MND had said in the past that it needs 21 PAC-3 batteries to counter the 700 missiles from PLA. Taiwan already has 3 PAC-2 systems, adding the 6 PAC-3, still not enough. More than half of the missiles will not be intercepted

It takes 4 PAC-3 missiles to intercept one. so a total of 2800 is needed. (each cost $3M) so this is a $12M vs $1M arms race. Meizhongtai quoted that pentagon alleged China is adding 75-120 per year, this would mean 300-480 PAC-3 needed for Taiwan in such a race, or US$1-1.5BN per year in cost, 0.2-0.3% GDP, versus 0.004-0.006% GDP for mainland China. 50:1, not a fair or sustainable race.

Now taiwan has 200 missiles from its 3 PAC-2 batteries (192 to be precise, 64 missiles per battery), and is going to get 6x128 pac-3 (each set has 128 missiles) in next 10 years, total=768+200=968, capable to intercepting 242 missiles.

Therefore, assuming PLA does not add any single missle (they could add75-120 p.a. if they want), it will still have 448 missiles after all the PAC-3 and PAC-2 are fired (assuming 100% interception!, reality is 70-95%). So what is the point?

But honestly, Taiwan does not have the resources to enter an arms race. Therefore, it has been suggested we should instead pay the US directly in exchange for protection

Meanwhile, MND will reduce the army by 270k soldiers. There will only be 3 brigades, about 5000 soldiers in Quemoy (Jinmen). DPP/MND said the best defense for Quemoy is not with army, but by promoting tourist! -- this is the most brilliant statement by DPP, as the best defense option is to seek peace. This is a valid strategy for any in the world."

In short, the fact is that all these changes are 'accounting adjustments' and shifting of budgets from other areas of MND. The total cost of the purchase is still at $610bn, the list of procurement has not been changed (6 PAC-3 batteries, 12 P-3C patrol aircrafts and 8 diesel submarines), and the price for each item is still the same. The Special Budget has been changed, but the arms deal has not. It would be met by different budgets. What has changed are the other procurement items and plans for Department of Defense, outside the list of these 6+12+8 items.

In the corporate world, if the CEO use this trick in manipulating the budget, if would be against most corporate by-laws. The board of directors has the right to ensure the approved budgets are used for what it is intended to do. Most likely it would be a mis-conduct, or lead to a Spitzer investigation. I am surprised no one in Taiwan has raised this issue.

As a result, the defense power of Taiwan is weakened by this special budget, because to pave way for this deal, MND had to cut 611-340=NT$271bn in other areas of its budget in the coming 10 years. What this means is that the reason for US blaming Taiwan's lack of seriousness in self defense is totally groundless. I hope Meizhongtai would agree with this. It was precisely the external political interference of this deal that has disrupted Taiwan's defense plan and weakened its defense. Ironically, by bending to the defense industry and hence disrupting Taiwan's defense planning, the US is making it a lot more costly to execute its Taiwan Relation Act when needed, unless, of course, if US does not believe that a war would ever happen. I surely hope for such scenario.

DPP inherited this from Lee Tenghui's KMT. So it is not its fault to be in this strange decision. The mainland is also to be blame for putting Taiwan into such bad negotiation position (by blocking virtually every potential supplier, and pointing the missiles at the island). However, as I have argued before, the best option for Taiwan is to bide its time. Similarly, the best strategy for the mainland is to remove the missiles and win the hearts of the Taiwan people. I still believe the chance of a war is extremely low, and that whether Taiwan spend this $610.8bn or not is irrelavant in the likelihood of a war. Furthermore, from what DPP said (and did) about Quemoy (Jinmen), Chen SB obviously understands the best strategy to defend the island, but he seems unwilling to adopt the same strategy for Taiwan, or was pressured into doing something else. If, as DPP said, the best defense for Quemoy is to develop tourism. What makes the strategy for defending Taiwan so different?

Update:official explanation for the need of these 3 weapons, seems the main strategic objectives are for 'psychological effect' and 'anti-blockade'. The ability of PLA to blockade Taiwan is an enormorous myth, if you look at US establishment in the east and NE of Taiwan. As for PAC-3 as psychological deterrant, I will leave it for you to judge :).

P3C: (Head of Navy Preparatory Training Chen Yongkang) "Taiwan strait is too shallow for submarine activities, so the subs are needed to patrol the open sea on the east" in order words, it is for anti-blockade (or assist US intervention?) in the sea between Taiwan and the Phillipines.

8 comments:

Sun Bin, Interesting post. Two things: *I don't think that blogpost calling it a renegotiation is representative. I've read numerous articles on the arms package and all of them made clear that the components were moved from the special arms budget to the normal arms budget. (Having said that, Li Jye's comments do seem a little unusual/misleading.) Have you seen anyone in the mainstream media calling them renegotiations?*Second, I wouldn't read too much into A-bien's Kinmen policy. If I remember correctly, in 2000, the DPP floated a rumor that they would happily give Kinmen and Matsu to the PRC if the PRC would grant Taiwan independence. He isn't looking at this in terms of island hopping, but rather cutting free an island to which an independent Taiwan would have very little historical claim to.

Regarding Li Jye's speech. Li Jye was making a generic appeal to pan-Blue legislators and asking them to consider his position. (note many pan-Blue voters are in the military background and could be sympathetic with him).

I think that is the writer's reading into his lines, but the wording were translated pretty faithfully. It is a very reasonable comment if you put yourself into Li Jye's shoes. you are asked to slash your budget by avg NT$27bn/yr (in fact, more likely 40-50bn in the beginning years), out of a total budget of about $300bn. that is a more than 10% cut. Chen promised a raise in budget in future, but it cannot impact the current year, and it is very unclear whether that would realize, esp given Chen's other priorities and the potential for pan-Blue blocking again.

Awesome post, Sun Bin. I too wondered about the Patriots, as the Chinese can easily swamp them. Ironically, they are the most effective weapon in the package. The Orions are worthless unless Taiwan controls the air (that's won't happen) and the subs are just stupid.

The arms purchase is crowding out weapons and training Taiwan needs for weapons that are insufficient (Patriots), dependent upon assumptions that will not work out (the antisub aircraft require that Taiwan control the air, or are useless (submarines). The real question is whether this is US strategy to provoke a war by making Taiwan weak, or whether the US is simply being stupid.

....which then takes us to the next question: is A-bian going along with this because he knows it is weakening Taiwan and will provoke a war, to bring the US in and make the island independent?

I think the motivation is probably simpler, just money. It is not US strategy, but arms dealer lobbying. the Bush govt probably believe Taiwan's own defense is weak with or without the arms deal such that it makes no difference in a conflict, why not squeeze them some $.

Poor A-bian has no choice. He could not afford to anger the congressmen or the adminstration in US.

The arms deal is just a sub-optimal choice compared to alternative use of the same amount of fund. I don't think A-bian wants to weaken the defense on purpose. Because, there is no guarantee US would intervene.

"I think the motivation is probably simpler, just money. It is not US strategy, but arms dealer lobbying. the Bush govt probably believe Taiwan's own defense is weak with or without the arms deal such that it makes no difference in a conflict, why not squeeze them some $."

US can make and save even more money without Taiwan. Do people in Taiwan ever think of that? Taiwan is just a problem child at US's side. All of troops station in Japan and in Korea are not free. That's US money for South Korea, Japan, and Taiwan's lazy ass security.

Put the downpayment on the table, and Taiwan can negotiate the rest. No one in US is going to pull their necks out if Taiwan show no commitment with this at all. Even Bush understand the importance of this deal passing though, he'll make sure all against it like Navy would be straighten out.

ROC military men (Hua Ren) have backstab us (Tai Wan Ren) before with the Bubble Tea for Arms bullcrap. I can even make a better commerical than that blindfolded. That commercial is their way of spit at our archivement for creating new way of drinking tea.

It's also make sure people in Taiwan would not support it because of that bad taste in our mouth. At the same time, they get to blame this on CSB and looked as if they try their best to convince us with their full effort.

Most of the ROC military men (Hua Ren) support pan-blue party in Taiwan, the very people that are blocking Taiwan Arms Procurement process. For them, this is just a game they play on Taiwanese people until their party will return to power one day. To do that, they have to do whatever it takes to make sure Taiwan's economy is weak and our military is soft.

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